The gap between the rich and the poor is getting bigger. This has vast implications for the whole of the population.
Oxfam reported that the richest 1 per cent of Kiwis have 28 per cent — $42 billion — of the wealth created in a single year. Meanwhile, the poorest 1.4 million people (30 per cent of the population), got barely 1 per cent — $1.5b — of all the wealth created in 2017.
In New Zealand, we are fortunate that everyone over the age of 65 is entitled to receive a pension. However, those who rely on their pension to pay rent or their mortgage are struggling. As of the 2013 census, 19 per cent of the 65-plus population were not living in owner-occupied dwellings. 10 per cent live in private sector rentals, 4 per cent in social housing and 5 per cent in institutions (like residential care facilities). The most recent data from Statistics NZ tell us that as of June last year, more than half of the 65-plus age group have an income that puts them in the second lowest quintile — in dollar terms that means an annual income between $12,700 and $25,800.
A secure income is “the key initial catalyst” for older people, says Asghar Zaidi, professor of international social policy at Britain’s University of Southampton, who developed the Global AgeWatch Index (2015). “Other things follow on from there.” Governments may feel that the ever-growing elderly population makes it impossible to provide pensions. Zaidi says a major rethink is in order. “Today’s older people need protection and empowerment,” says Zaidi. “For future generations the focus must be on providing opportunities for employment during their working lives and better mechanisms to build resilience for old age.”
The idea, he says, is to think of these pension schemes as investments and consider the long-term benefits of such schemes. Younger generations are freed from the burden of looking after parents and grandparents, and the elderly gain independence, spending power and the ability to save.
What could be done?
The United Nation’s have suggested a global tax working group that could bring about fresh ideas and new approaches to ensure that the wealth gap was not widening.
It is not about attacking the extremely wealthy, it is about saying it is not okay that the poor are looking backwards at the same time as the wealthiest are increasing their wealth.
Evidence-based research shows that there are policies that Governments can put in place to reduce this gap. Although it has proven unpopular and unsuccessful over the past 12 month, introduction of a tax on capital gains could go towards helping to reduce this gap. Wealth begets wealth, so a tax on inheritance wealth could be another avenue. New Zealand is one country that taxed wealth at one of the lowest levels in the OECD.
Perhaps another rethink of tax could help reduce the gap or at least stop it from widening further.
Click here to download the full AgeWatch Index report.